As meat processors worry over how to price their products and hedge escalating feed grain costs, all eyes are on USDA's Prospective Plantings report due to be released Monday.
It is widely acknowledged that corn acreage will decline as low stocks of soybeans and wheat shift acres to those commodities. Consensus analysts forecasts of farmers' planting intentions, according to Dow Jones include:
--Corn acres at about 87.4 million acres versus 93.6 million in 2007
--Soybean acres at about 71.5 million acres versus 63.6 million in 2007
--Wheat acres at about 63.6 million acres versus 60.4 million in 2007
However, the operative word here is "intentions." USDA's report will be based on farmer surveys earlier this month, but in this volatile grain market the picture may have already changed. University of Illinois Extension Economist Darrel Good points out that "history reveals some significant differences between intentions and actual planted area."
To that end, larger than expected corn acreage would be good news for poultry producers, as corn is about 70 percent of feed rations, according to a note to investors from JPMorgan food analyst Pablo Zuanic. Larger than expected soybean acreage would be good news for vertically-integrated pork processors as it would lower soybean meal prices.
Corn wild card
Both Good and Zuanic believe larger than expected corn acreage is the most likely scenario.
"Based on production cost budgets for Illinois and current new crop bids for corn and soybeans, corn production appears to be potentially much more profitable than soybeans in 2008," Good told Meatingplace.com. He also noted recent declines in soybean futures prices and an extremely weak new crop soybean basis.
Zuanic pointed to strong corn futures contracts six months out, the ethanol-friendly energy bill passed earlier this year and a soybean-to-corn price ratio that doesn't yet favor soybeans over corn. He predicted corn acres may only fall as low as 90-92 million acres. Similarly, Good expects farmers to plant corn on 90 million acres or more.
By Janie Gabbett on Friday, March 28, 2008 For Meatingplace.com.